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Forecasting with Feelings: The Modest Link Between Consumer Sentiment and Spending

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Abstract

Recent declines in consumer sentiment have prompted concerns about an impending slowdown in spending growth. However, the link between consumer sentiment and growth in real household spending has been modest historically, suggesting changes in consumer sentiment are unlikely to significantly alter forecasts of household spending. Consistent with this interpretation, despite the downbeat tone from consumers, sentiment does not meaningfully alter near-term predictions of 2025 spending growth.

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  • Jose Mustre-del-Rio & Jalen Nichols, 2025. "Forecasting with Feelings: The Modest Link Between Consumer Sentiment and Spending," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, May.
    • Handle: RePEc:fip:fedkeb:100050
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    File URL: https://www.kansascityfed.org/documents/10866/EconomicBulletin25MustredelRioNichols0516.pdf
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    1. Jason Bram & Sydney C. Ludvigson, 1998. "Does consumer confidence forecast household expenditure? a sentiment index horse race," Economic Policy Review, Federal Reserve Bank of New York, vol. 4(Jun), pages 59-78.
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